Duma Plan to Target Shadow Business will Anger Many and Achieve Little, Experts Say
August 3 – Even as protests against raising retirement ages continue and some
suggest this Putin move recalls Gorbachev’s anti-alcohol campaign in terms of how
it is undermining the regime (publizist.ru/blogs/34/26272/-), Moscow
appears ready to adopt yet another measure that will infuriate the population without
achieving what its authors hope for.
group of United Russia Duma deputies has come up with draft legislation that
will increase fines by 40 times on those engaged in illegal entrepreneurial
activity, that is, on those who fail to register their actions with the state
and thus avoid paying taxes or living by the rules (profile.ru/economics/item/126445-v-pogone-za-tenyu).
United Russia leaders
have approved the idea but suggested that the amount of increase in the size of
fines should be reduced.But both
representatives of other parties in the Duma and independent experts say that
this move will not lead to massive registration or any windfall for the
government in terms of revenue, Igor Naumov of the Profile portal reports.
to recent studies, more than 14.6 million Russians over the age of 15 work in
the “informal” or “shadow” sector – or just over 20 percent of all the employed
population. And because many work part time in this sector, as many as 33
million Russians, 44.8 percent of all employed, are part of it as well.
have all been rising, Andrey Nazarov of Delovaya
Rossiya says, even though conditions for conducting business in Russia have
been improving. The reason people don’t register is fear of government
supervision and control and the burden taxes and reporting requirements impose
on their activities.
current size of fines for this type of economic activity mean that many simply
ignore them or treat them as a cost of doing business, one far lower than they
would have to pay if they were operating in compliance with the state.But raising these fines will do little to end
the problems the state has with the biggest offenders, experts say.
Russian shadow economy forms 39 percent of the country’s GDP, but it is not one
thing but rather several and approaching all of them in the same way will not
work.According to Aleksey Kalachev of FINAM, the
authorities need to recognize this and devise different approaches to different
aspects of the problem.
criminal activity will never be registered by anyone no matter how high the
fines are, he says; and what many call “the garage economy,” while it involves
many people who are engaged in relatively small but economically important
activities. Moreover, its suppression would beyond question trigger popular
anger and possibly protests.
these two are firms that don’t register and might do so to avoid higher fines.
But the largest of them won’t because they will treat any fines as a cost of
doing business or seek to avoid paying them by the use of their relationships
with the authorities. In any case, Kalachev says, the total value of these
firms is far smaller than many imagine.
needs to be done instead of a one-size-fits-all fine regime, the economic
analyst argues, is to change the registration requirements to make it easier
for individuals to register and report their incomes combined and combine that
with better enforcement of existing laws governing truly illegal economic